SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number
Registration Number 2-93512-A
ACTION PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2095427
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
344 Cypress Road, Ocala, Florida 34472-3108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (352) 680-3516
Check whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of September 30, 1997.
Class Outstanding at September 30, 1997
Common Stock, $.001 par value 1,549,926
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I N D E X
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1997
and December 31, 1996 (unaudited) 3
Condensed Statements of Operations and
Changes in Retained Earnings - Three
and nine months ended September 30, 1997
and 1996 (unaudited) 4
Condensed Statements of Cash Flows
Three and nine months ended September
30, 1997 and 1996 (unaudited) 5
Notes to condensed financial statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
SIGNATURE PAGE 9
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<S> <C> <C>
September 30, 1997 December 31, 1996
Current assets:
Cash and cash equivalents $ 103,325 $ 463,137
Accounts receivable, net of
allowance of $5,500 at
September 30, 1997 and $25,500
at December 31, 1996 876,777 517,982
Inventories, net 1,999,516 1,204,778
Prepaid expenses 206,590 246,888
Total Current Assets 3,186,208 2,432,785
Property, plant and equipment,
net of accumulated depreciation
of $952,265 at September 30, 1997
and $872,692 at December 31, 1996 999,033 1,064,522
Other assets 303,810 375,009
TOTAL ASSETS 4,489,051 3,872,316
Current liabilities:
Accounts payable & accrued expenses 460,169 593,174
Borrowings under line of credit 551,750 175,000
Total Current Liabilities 1,011,919 768,174
Long term liabilities:
Notes payable 600,000 600,000
Shareholders' equity: Common stock
$.001 par value authorized 7,500,000;
1,549,926 issued and outstanding at
September 30,1997 and December 31, 1996 1,550 1,550
Capital in excess of par value 2,904,192 2,904,192
Stock subscription receivable (14,556) (84,000)
Accumulated deficit (14,054) (317,600)
Total Shareholders' Equity 2,877,132 2,504,142
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,489,051 $ 3,872,316
</TABLE>
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended September 30 Nine months ended September 30
1997 1996 1997 1996
Net Sales $ 1,700,503 $ 1,458,827 $ 4,654,512 $ 4,632,673
Cost of Sales 918,816 955,156 2,585,283 3,026,755
Gross Profit 781,687 503,671 2,069,229 1,605,918
Selling, General &
Administrative Expenses 623,606 443,544 1,703,494 1,294,914
Other (expenses) income
Other 272 6,902 4,663 25,841
Interest expense (25,774) (13,625) (66,852) (41,824)
Total (25,502) (6,723) (62,189) (15,983)
Income before income taxes 132,579 53,404 303,546 295,021
Provision for income taxes - - - -
Net Income 132,579 53,404 303,546 295,021
Beginning retained earnings
(accumulated deficit) (146,633) 241,872 (317,600) 255
Ending retained earnings
(accumulated deficit) $ (14,054) $ 295,276 $ (14,054) $ 295,276
Net Income per share $0.09 $0.04 $0.20 $0.20
Net income per common and common
equivalent share (fully diluted) $0.05 $0.02 $0.12 $0.11
Weighted average number
of common shares outstanding 1,549,926 1,499,926 1,549,926 1,499,926
Weighted average number of
common and common equivalent
shares outstanding 2,739,210 2,749,210 2,739,210 2,749,210
</TABLE>
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended September 30 Nine months ended September 30
1997 1996 1997 1996
Cash flows from operating activities:
Net income (loss) $132,579 $53,404 $303,546 $295,021
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 25,607 28,541 79,573 81,723
Change in assets and liabilities:
Decrease (increase) in current
assets other than cash and cash
equivalents 92,813 399,847 (1,113,235) (471,498)
Increase (decrease) in
current liabilities (313,818) (273,203) (133,005) (217,324)
Decrease (increase) in
other assets 29,069 (179,612) 71,199 (217,897)
Net cash provided by (used in)
operating activities $ (33,750) $ 28,977 ($ 791,922) ($ 529,975)
Net cash used in
investing activities ($ 5,810) ($ 59,128) ($ 14,084) ($ 171,381)
Cash flows from financing activities:
Proceeds from (repayments of)
borrowings on line of credit, net 135,000 - 376,750 -
Results of other financing activities - - 69,444 268,000
Net cash (used in) provided by
fin. Activities $ 135,000 $ - $ 446,194 $ 268,000
Net increase (decrease) in
cash and cash equiv. $95,440 ($30,151) ($359,812) ($433,356)
Cash and cash equivalents
at start of period $ 7,885 $ 196,880 $ 463,137 $ 600,085
Cash and cash equivalents
at end of period $ 103,325 $ 166,729 $ 103,325 $ 166,729
Supplemental disclosures - cash paid for
Interest $25,774 $13,625 $66,852 $41,824
Taxes $0 $0 $0 $11,075
</TABLE>
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ACTION PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed consolidated financial statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all normal recurring adjustments
necessary to present fairly the financial position of Action Products
International, Inc. at September 30, 1997 and the results of its operations
and cash flows for the three and nine month periods ended September 30, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's report on Form 10-KSB
for the year ended December 31, 1996. The results of operations for the
period ended September 30, 1997 are not necessarily indicative of the
operating results for the full year.
2. Shareholders' equity
During the nine months ending September 30, 1997 shareholders' equity
increased $372,990. Net income for the period was $303,546. The Company
collected $69,444 of the outstanding stock subscriptions receivable; $14,556
remains receivable from a related party in the form of non-interest bearing
promissory notes secured by the stock purchased.
3. New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, which is effective for the
periods ending after December 15, 1997. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share based upon the weighted average number of common shares
for the period. It also requires dual presentation of basic and fully
diluted earnings per share for companies with complex capital structures.
Adoption of the provision of SFAS No. 128 would not significantly affect
reported earnings per share for any of the periods presented.
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ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Any statements that are not historical facts contained in this discussion are
forward looking statements. It is possible that the assumptions made by
management for purposes of such statements may not materialize. Actual results
may differ materially from those projected or implied in any forward looking
statements. Such statements may involve risks and uncertainties, including but
not limited to those relating to product demand, pricing, market acceptance, the
effect of economic conditions, and intellectual property rights and the outcome
of competitive products, risks in product development, the results of financing
efforts, the ability to complete transactions, and other risks identified in
this and the Company's other Securities and Exchange Commission filings.
Three months ended September 30, 1997
During the third quarter ended September 30, 1997 revenue increased to a record
$1,700,503 in 1997 from $1,458,827 in 1996, up $241,676, or 17%. The third
quarter 1997 net income improved 148% to a record $132,579 versus $53,404 for
the 1996 comparable period, due to the increases in sales and gross margins.
The increase in sales is attributable to improved packaging and presentation of
the Company's core product lines; significant merchandising and marketing
efforts; sustained sales from new products released in latter part of the second
quarter; and a continued effort by sales management to expand the sales force
and broaden the market base.
Gross profit increased $278,016 to $781,687 from $503,671. As a percent of
sales, gross profit increased more than eleven points to 46.0% from 34.5% for
the 1996 comparable period. Management attributes this improvement in gross
profit percentage to selling price increases, new proprietary products,
and more beneficial terms and pricing with overseas vendors, all of which
are primarily attributable to the Company's recent transition from distributor
to manufacturer. Selling, General & Administrative expenses increased
$180,062. Management attributes the increase in expenses to various
transitional costs including: its new catalogs by product line, extended
trade show coverage, and other marketing expenditures; additional salaries and
commissions connected with the Company's strengthening of its marketing and
sales force and outside sales representative organizations; and increases in
depreciation and amortization linked to prior year acquisitions of equipment and
other assets.
Nine months ended September 30, 1997
During the nine months ended September 30, 1997 revenue increased slightly to
$4,654,512 in 1997 from $4,632,673 in 1996. Record sales in the second and
third quarters of 1997 overcame the shortfalls experienced in the first quarter
of 1997. The nine months 1997 net income was $303,546 versus $295,021 in 1996,
an improvement of 3%, due to the improved margins of proprietary products and
the increase in sales. The increase in sales is attributable in part to
improved packaging and presentation of the Company's core product lines;
significant merchandising and marketing efforts; sustained sales of new products
released in latter part of the second quarter; and a continued effort by sales
management to expand the sales force and broaden the market base.
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Page 8 of 9
Gross profit increased $463,311 to $2,069,229 from $1,605,918, up nearly 30%.
As a percent of sales, gross profit was up to 44.5% from 34.7% for the 1996
comparable period. Management attributes this improvement in gross profit
percentage to selling price increases, new proprietary products, and more
beneficial terms and pricing with overseas vendors, all of which are primarily
attributable to the Company's transition from distributor to manufacturer.
Selling, General & Administrative Expenses for the six months ended increased
about 30%. As previously discussed, management attributes the increase in
expenses to various first quarter expenditures as well as other transitional
costs including its additional marketing expenditures, additional salaries and
commissions, and increases in depreciation and amortization.
Financial Condition, Liquidity and Capital Resources:
As of September 30, 1997, current assets were $3,186,208 compared to current
liabilities of $1,011,919 for a current ratio of 3:1. At September 30, 1997,
working capital improved by $509,678 compared to December 31, 1996.
Historically, the peak period of the Company's business cycle has been March
through August. Thus, accounts receivable and inventories were $876,777 and
$1,999,516, respectively, at September 30, 1997 compared to $517,982 and
$1,204,778, respectively, at December 31, 1996. The increase in receivables and
inventories are considered normal for the Company and reflect the increased
activity in the Company's high volume period. Total current assets increased by
$753,423, total assets increased by $616,735. Current liabilities increased by
$245,245 due primarily to draws on the Company's line of credit, used for
inventory purchases.
Significant changes in balance sheet from December 31, 1996 included the
following: Accounts receivable increased to $876,777 from $517,982, an increase
of $358,795, due to seasonal increases during the Company's peak period and
record sales in the third quarter. Inventories, consisting primarily of
finished goods, increased $794,738 to $1,999,516 at September 30, 1997 from
$1,204,778 at December 31, 1996 due to its seasonal nature and recent receipts
of overseas products. Property, plant and equipment, net of depreciation,
decreased by $65,489 from December 31, 1996 due to normal depreciation of fixed
assets. Accounts payable and accrued expenses decreased $131,505 to $461,669 at
September 30, 1997 from $593,174 at December 31, 1996 due to the seasonal nature
of the purchases and the timing of inventory receipts.
Cash and cash equivalents were down $359,812 from December 31, 1996 but up
$95,440 from June 30, 1997. Cash flow used in operations was $33,750 for the
three months ended September 30, 1997 as compared to cash flow provided by
operations of $28,977 for the comparable period September 30, 1996. This is due
primarily to the decreases in current liabilities since June 30, 1997. Cash
flow used in operations was $791,922 for the nine months ended September 30,
1997 due to increases in inventories and accounts receivable associated with the
Company's peak period.
Shareholders' equity at September 30, 1997 increased during the nine months by
$371,490 to $2,875,632 due to earnings and the receipt of payments of stock
subscriptions from related parties.
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Page 9 of 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Action Products International, Inc.
Date: November 7 ,1997 By: /s/ Delton G. de Armas
Delton G. de Armas
Controller/Corporate Secretary
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 876
<ALLOWANCES> 0
<INVENTORY> 1999
<CURRENT-ASSETS> 3186
<PP&E> 1951
<DEPRECIATION> (952)
<TOTAL-ASSETS> 4489
<CURRENT-LIABILITIES> 1011
<BONDS> 600
<COMMON> 2
0
0
<OTHER-SE> 2875
<TOTAL-LIABILITY-AND-EQUITY> 4489
<SALES> 4655
<TOTAL-REVENUES> 4655
<CGS> 2585
<TOTAL-COSTS> 2585
<OTHER-EXPENSES> 1708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
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